Commons Treasury committee raises concerns about powers of HMRC to remove cash
from bank accounts without a court order

Innocent people face having money taken straight out of their bank accounts under draconian powers to be used by the taxman, MPs warn on Friday.

A Treasury plan to allow HM Revenue and Customs to remove cash from bank accounts without a court order is “very concerning” because of its history of mistakes, a Commons committee said.

In a consultation document this week, HMRC said the "direct recovery" powers could be used to take money from joint accounts.

The tax authorities admitted this week that about 17,000 people a year would be targeted under the new measures, set out in the Budget and designed for use against people who owe them money.

But today the Commons Treasury committee says that taxpayers could suffer “serious detriment” if officials are able, either by mistake or through an “abuse” of power, to take money from people who have done no wrong. In a report on the Budget, the MPs also:

• Repeat concerns about the booming housing market and the Help to Buy scheme, hinting that the Bank of England should be ready to intervene soon;

• Warn that enabling people to invest their pension pots as they wish raises the risk of financial services companies offering “defective” investments;

• Call for broader reform of the taxation of savings and pensions, suggesting a single tax regime for both.

Under the planned new measures, tax officials will have an automatic power to take money from a bank account when the holder has failed to act on four formal warnings requiring payment.

Currently officials can only remove money in this way with the permission of a magistrate or judge.

The Treasury insists that safeguards will ensure that the new power is only used against those who have repeatedly refused to pay their taxes.

But the MPs say in their report: “The ability directly to have access to millions of taxpayers’ bank accounts raises concerns about the risk of fraud and error.

“This policy is highly dependent on HMRC’s ability accurately to determine which taxpayers owe money and what amounts they owe, an ability not always demonstrated in the past. Incorrectly collecting money will result in serious detriment to taxpayers.” The Revenue has faced repeated criticism over the accuracy of its tax records and its handling of sensitive personal data.

It admits that more than five million people are charged the wrong amount through the Pay as You Earn system because they are allocated the wrong tax code.

In 2007, officials lost discs containing the personal data and bank details of 25 million families claiming child benefit.

Andrew Tyrie, the Conservative chairman of the Treasury committee, said the proposed power was “very concerning” and suggested that the organisation could not be trusted to be accurate.

“People should pay the right amount of tax. But HMRC does not always ask for the right amount,” Mr Tyrie said.

“Some taxpayers may find money taken from their accounts that later should be paid back. That would be unacceptable.”

The Treasury says that the new tax powers, which are due to be put in place next year, will lead to the collection of an extra £100 million a year. Only people who owe more than £1,000 should face the confiscation of money from bank accounts, and only if they would have at least £5,000 left afterwards.

HMRC this week estimated that around 17,000 people a year would be affected and outlined safeguards including a 14-day period in which the seized money would be frozen, allowing a debtor to pay voluntarily.

A formal consultation on the new tax powers is under way.

The Institute of Chartered Accountants in England & Wales (ICAEW), has suggested that handing officials the power to seize money without a judge’s permission could undermine “a fundamental tenet of our English law and our democratic society”.

The Association of Chartered Certified Accountants has said that the protections in the system “look relatively robust” but that it still has “concerns over how efficient HMRC could be in maintaining those safeguards”.

However, the Treasury committee says that the safeguards announced this week do not go far enough and should be strengthened.

Ministers must ensure that HMRC “cannot act erroneously with impunity,” the MPs say in the report, suggesting rules on damages payments to any individuals who have money wrongly seized, and new disciplinary rules to punish “abuse of the power”.

Announcing the new powers in his Budget in March, George Osborne, the Chancellor, said that the change would simply bring the tax authorities into line with their counterparts elsewhere.

“We will give HMRC modern powers to collect debts from bank accounts of people who can afford to pay but have repeatedly refused to, like most other Western countries,” he said.

A treasury spokesperson added: "The government’s long term economic plan is to reduce the deficit so that we deal with our debts. It is therefore important that people pay the tax they owe on time.

"Although the vast majority do this, there is still a minority that chooses not to pay, despite being able. The proposed powers will give HMRC another tool to collect tax debt owed. The current consultation includes a range of safeguards to ensure the power is tightly targeted.”